In a system and method for evaluating and comparing variable annuities, ranking and comparison of annuities and their guaranteed riders is performed by coding the performance of the annuities into a computer model based on the behavior of one or more annuity products as described in a prospectus. A user is provided with a computer interface to input his/her preferences and then view anticipated performance. The anticipated performance is based on one or more validated scenarios of future market performance. The output is in part based on showing the total value of two or more different annuities over time as a bar chart. Each bar presents the total withdrawals to date in a lower portion and the cash surrender value as a top portion.
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1. A method of using an annuity comparison system to evaluate and compare financial performance of one or more variable annuity products for the benefit of a prospective product purchaser, the annuity comparison system including computer hardware and computer software, the method comprising the steps of: (a) receiving product specification data corresponding to each annuity product to be evaluated, the product specification data for each annuity product including product feature terminology, the product feature terminology identifying product features present in each annuity product using terminology corresponding to a common product glossary, the common product glossary comprising a glossary containing generic terminology identifying key features found in the annuity products; (b) using the product specification data and one or more annuity performance equations, defining in the computer software at least one annuity product model; (c) receiving purchaser demographic data into the annuity comparison system for use by the annuity product model; (d) receiving purchaser preference data into the annuity comparison system for use by the annuity product model, the purchaser preference data comprising purchaser preferences for annuity product types and annuity product features; (e) using the annuity product model, simulating financial performance for each annuity product based on the purchaser demographic data and the purchaser preference data; (f) using results from simulating the financial performance of each annuity product, outputting from the system a product ranking for each annuity product according to one or more annuity product performance characteristics, wherein the step of outputting a product ranking for each annuity product includes outputting an aggregate score product ranking and one or more separate product rankings corresponding to separate product performance characteristics; (g) receiving one or more market scenarios into the system for use by the annuity product model, the market scenarios comprising predicted performance data for investments defined in the products; (h) receiving one or more owner behavior assumptions into the system for use by the annuity product model, the owner behavior assumptions comprising the expected product utilization behavior and preferences defined by the purchaser for different annuity product features; (i) using the market scenarios and owner behavior assumptions in the model to simulate the financial performance for each product; (j) using results from simulating the financial performance of each annuity product based on market scenarios and owner behavior assumptions, outputting from the system a product performance chart, the product performance chart displaying one or more of predicted account values, predicted cash surrender values, predicted death benefits, product fees and monthly, annual or cumulative withdrawals over a period of ownership of each product; and (k) wherein the step of defining at least one annuity product model further comprises testing cash flows from the annuity product model against a deterministic model for the product being modeled, wherein the cash flows comprise one or more of account values, benefit base, premiums, and withdrawals associated with the annuity product being modeled and wherein the deterministic model for the product comprises a model having an output defined by annuity product parameter settings and parameter data input into the model.
A system for comparing variable annuities helps prospective buyers by using computer hardware and software to: (a) Get specifications for each annuity, using common industry terms to describe features. (b) Create a computer model of each annuity using these specifications and formulas. (c) Input the buyer's age and other demographics. (d) Input the buyer's preferences for annuity types and features. (e) Simulate each annuity's financial performance based on the buyer's data. (f) Rank the annuities based on performance, showing an overall score and rankings for specific characteristics. (g) Input market predictions for underlying investments. (h) Input expected buyer behavior regarding product use and feature preferences. (i) Re-simulate performance using market predictions and behavior assumptions. (j) Output a chart showing predicted account values, surrender values, death benefits, fees, and withdrawals over time. (k) The annuity model is validated by comparing its cash flow predictions against those of a separate, simpler model using fixed parameters.
2. The method of claim 1 , the purchaser preference data further comprising expected product utilization behavior, wherein the expected product utilization behavior represents how and when the purchaser expects to utilize one or more of the annuity product features.
The annuity comparison system described previously enhances the buyer preference input by also capturing how and when the buyer anticipates using the annuity's various features. This expected product utilization behavior is used within the annuity model in order to more accurately simulate financial performance and generate product rankings for a specific user.
3. The method of claim 1 wherein: the product specification data includes data representing one or more guaranteed living benefit (GLB) or Guaranteed Minimum Death Benefit (GMDB) riders available for each product; and the purchaser preferences include a selection of at least one GLB or GMDB rider.
In the annuity comparison system described previously, the product specification data includes information on optional Guaranteed Living Benefit (GLB) or Guaranteed Minimum Death Benefit (GMDB) riders available with each annuity. The buyer preferences further include the selection of one or more of these GLB or GMDB riders, which will then be factored into the financial performance simulations and product rankings.
4. The method of claim 1 further comprising the step of adjusting an output of the product performance chart to show one of either nominal or inflation-adjusted cash flows.
The annuity comparison system described previously allows the user to adjust the displayed cash flows on the product performance chart to show either nominal (unadjusted) values or inflation-adjusted values. This feature provides the prospective buyer with a more complete understanding of the potential future value of the annuity products under consideration.
5. The method of claim 1 wherein the step of outputting the product performance chart further comprises outputting a bar chart, the bar chart comprising a plurality of bars for each annuity product, wherein each bar comprises a first portion representing one of the predicted cash surrender value, the predicted account value, and the predicted death benefit, and a second portion representing one of either annual or cumulative withdrawals from the product.
The annuity comparison system described previously generates a bar chart as its product performance chart, where each bar represents a specific annuity product at a given point in time. Each bar is divided into two sections: one section shows either the predicted cash surrender value, account value, or death benefit, and the other section shows either the annual or cumulative withdrawals from the product at that time.
6. The method of claim 5 wherein: the step of outputting the product performance chart further comprises a outputting a combination of bar and line charts corresponding to each annuity product.
The annuity comparison system with the bar chart display described previously can also output a combination of bar and line charts corresponding to each annuity product. This hybrid visualization approach allows for showing both discrete values (using bars) and trends over time (using lines) for the key financial metrics of each annuity.
7. The method of claim 1 wherein the step of receiving one or more market scenarios into the system further comprises selecting a market scenario for use by the annuity product model from a set of market scenarios that have been validated as suitable for one of either estimating insurance reserve requirements or based on historically observed market performance.
The annuity comparison system described previously uses validated market scenarios. These market scenarios are selected from a set that has been validated either for estimating insurance reserve requirements or that are based on historical market performance. This ensures the system uses reasonable and reliable market assumptions when simulating annuity performance.
8. The method of claim 1 wherein the step of receiving the product specification data comprises: obtaining product prospectus data for each product; entering the product prospectus data into a prospectus tracking data form; identifying and adding new product feature terminology to the common product glossary; and updating the annuity product model using the new product feature terminology.
To obtain product specification data, the annuity comparison system described previously does the following: retrieves prospectus data for each annuity product; populates a data form to track prospectus information; identifies any new product feature terminology and adds it to a shared glossary; and then updates the annuity product model to reflect this new terminology.
9. The method of claim 8 wherein the step of receiving the product specification data further comprises entering product specification data for each annuity product into a pre-defined product specification template.
The annuity comparison system described previously, when obtaining product specification data and updating the annuity model, also populates a predefined template with specification data for each annuity product, using information from the prospectus and common glossary. This standardized template facilitates consistent data input and model updates.
10. The method of claim 8 wherein the step of receiving the product specification data further comprises entering annuity product parameter data into a parameter record data form.
The annuity comparison system described previously uses a parameter record data form to capture detailed parameter data for each annuity product, in addition to the steps of obtaining product prospectus data, tracking data, adding new terminology, and updating the annuity product model.
11. The method of claim 1 wherein the step of defining at least one annuity product model further comprises testing cash flows from the annuity product model against cash flow examples found in a product prospectus published for the product being modeled.
The annuity comparison system described previously validates its annuity product model by comparing the cash flows predicted by the model against example cash flow scenarios found in the product prospectus published for the annuity being modeled. This ensures the model accurately reflects the product's documented behavior.
12. The method of claim 1 further comprising: after simulating the financial performance for each annuity product based on initial purchaser preference data, changing at least some of the purchaser preference data; using the annuity product model, simulating the financial performance for each annuity product based on the purchaser demographic data and the changed purchaser preference data; and using results from simulating the financial performance of each annuity product based on the changed purchaser preference data, outputting from the system an updated product ranking for each annuity product according to one or product performance characteristics.
The annuity comparison system described previously allows users to iteratively refine their preferences and observe the impact on product rankings. After the initial simulation, the user can change their preferences. The system then re-simulates performance for each annuity using the updated preferences and outputs a new product ranking that reflects these changes, allowing the user to explore different scenarios.
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October 11, 2010
June 25, 2013
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